Strategies for the Recession - Insights from Six Restaurant Group CEOs

I came across a super series of CEO interviews in Restaurant Magazine’s online edition whilst doing some research yesterday. Its real gold standard material for anyone wanting to gain some real-life insights into how businesses focus their strategy during a recession. I’ve highlighted some of the key quotes, issues and ideas below, together with links to the interviews themselves if students want to take a more detailed look. My emphases are in bold.

Looking through the interviews one more time, I picked up the follow key lessons for strategy:

* A recession is no time to allow quality standards to fall - customers expect the same or better quality for the same or a lower price. Customer expectations are rising.
* In consumer-facing markets, value-for-money is what customers really want
* Early, decisive action is key - as is management’s ability to hold their nerve in uncertain times. Leadership is therefore key.
* Customers will remain loyal - but they expect a business to do even more to earn their loyalty! Constant two-way communication and feedback with/from customers is vital
* Don’t cut back on investment in innovation - if the brand is built on innovation, keep investing
* Focus on the three P’s of management in a recession: people (training), promotion & product
* Pricing - keep it reasonable and accept a slightly lower profit during the downturn
* Drive costs down - but don’t throw the baby out with the bathwater

“We’re completely focused now on driving our operating standards. The whole team is working hard to make the guest experience better,”

Consumer buying behaviour is changing:

“In all the consumer groups I’ve sat with over the years I’ve not seen people so articulate about how they’re modifying their behaviour. These people are planning how they’re going to dine out, they have their little portfolio of offers and coupons that they’ve pulled off the internet and they’re discussing with their friends who’s going to get their business tonight. These are our core target customers that have decided they’ll put a bit of energy into their research. And they’re only coming if you give them a deal. That’s a new behaviour that we’re having to adapt our trading strategies to.”

“We’ve got positive like-for-likes and I don’t think everybody can say that. But no matter what happens we won’t compromise on the quality of the food, affect the speed of service or chintz on the maintenance of the restaurants. What you want in uncertain times is to keep your nerve, continue to do what you`re doing, look to build on sales and come out of it stronger. It’s about spotting the time to press the accelerator. That’s the key.”

“An extraordinarily loyal customer base coupled with increased investment in staff will help YO! Sushi ride out the current economic storm”

On the importance of continued innovation:

“Lighting, seating, video screens and uniforms can all be different; it’s all about making a mainstream branded restaurant that bit more personal. The food continues to evolve too, with the whole menu of about 90 dishes reviewed at least once a year”.

This tailoring of the offering has reaped rich rewards in terms of a loyal customer base. Some 20 per cent of YO!’s customers eat there once a week – a staggering statistic that Rowland describes as “virtually a Pret a Manger or coffee shop metric”. The majority of its customers are female, and webliterate too. YO! has built an enviable database of 250,000 people, each of whom has signed up to its YO! Love Club and receives a monthly e-letter with details of news and offers. The communication is two-way, with customers providing a wealth of invaluable feedback

As the economy evolves, so Rowland’s role at the helm of the company is changing. He describes his job as juggling the five ‘P’s – People, Product, Property, Promotion and Profit. In 2007, much of his energy was spent looking at property and profit, putting together a deal to raise finance for the company. “My job now, especially as we move into a downturn, is to focus on People, Promotion and Product (both service and food), in this spirit of constant evolution,” explains Rowland.

On investing in people:

A YO! academy will open in 2009 in London. “All our management from general manager to sous chefs will undergo their initial training there. It’s a significant investment,” says Rowland. “But we truly believe this is a people business that needs to deliver on customers’ ever-rising expectations.”

“If you’re experienced in the restaurant industry, but now want to be your own boss, it’s actually not such a bad time to strike out on your own,” he says, “property costs are lower than they were and there are a number of venues that are up for sale, which may offer an opportunity.

“These are tough, competitive times and I think people want a proposition of genuine quality that is affordable,” he argues, “our average ticket is quite a modest indulgence compared to the expense account £50-plus per meal restaurant segment, which is under some degree of pressure.”

It’s simple really, but good food, atmosphere, hard work and passion are key to a restaurant staving off the effects of the downturn. That and offering value for money. “In the credit crunch people aren’t going to stop eating out and sit at home, dwelling on everything,” says Marcello.

“They still want to go out. But you have to make it affordable for them. You can price yourself out of the market, and then you’re in trouble. So keep your prices reasonable, make a little less profit, but make sure you get people through the door.”

“I think the position we’re in now goes all the way back to December 07 when we took some of the hard decisions very, very early,” confirms Campbell. He insists they were simply acting responsibly, while others chose to ignore the warning signs.

“A number of operators were still in denial last year, opening restaurants at a rate that we thought was inappropriate,” he adds. As he recalls, in late 2007 the economy was already looking increasingly uncertain, food inflation was picking up steam and there was a frothy property market in which landlords’ demands were getting higher and higher.

Along with the decision to slow expansion in December 2007, Page and Campbell adopted a different strategy for running the business. In the UK that meant two things. Firstly, a more intensive focus on stimulating sales, particularly through promotions. And secondly, it meant looking at driving costs out of the supply chain.

“There’s a lot of promotion going on at the moment and we’ve been at the heart of that in terms of developing innovative sales promotions at different times of the week to get more bums on seats at quieter times,” says Campbell.

As for the supply chain, Campbell claims the company has been able to make considerable cost savings by improving efficiency. As an example, he cites the consolidation of their bread supply. Previously three bakers supplied them with their needs. Now, there’s just the one.

Jim Riley

Before founding tutor2u with twin brother Geoff, Jim was a director at Thomson Travel Group Plc and a Corporate Finance and Strategy specialist at PwC. Jim is graduate Economist, a Fellow of the ICAEW and has a MBA (Distinction) from Bradford Management School.

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